The Conflict between General Equilibrium and the Marshallian Cross

Quaid-i-Azam University - Pakistan Institute of Development Economics (PIDE)

Date Written: June 15, 2012

Abstract

This paper illustrates on a simple model of production economy with constant returns the incoherence of the partial competitive equilibrium analysis. The conflict between the Marshallian cross and the general equilibrium, which survives under many proposed restrictions of our economic domain, can be remedied under decreasing returns technologies, when the joint production possibility is present andfixed costs of joint production are suciently low.

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